Insurers Are (Slowly) Preparing for Future World of Driverless Cars

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When a self-driving Uber vehicle killed a pedestrian attempting to cross a dark, Phoenix-area street in March, it served as a wake-up call to a mobility industry moving at a furious pace to advance autonomous vehicle technologies.

The fatality reinforced consumer skepticism of driverless cars, as evidenced by a recent survey conducted by CarGurus (more on that in a minute), and inspired some automakers to pump the brakes. The incident also threw the insurance industry into a bit of a tizzy, says Tom Super, director of the property and casualty insurance practice at J.D. Power, a Troy, MI-based market research firm.

J.D. Power’s research indicates that both consumers and insurers sought clarity on the risks and potential rewards associated with autonomous vehicles after the Uber accident, and Super believes the insurance industry is at a tipping point. Self-driving cars are definitely coming, he says, and their arrival may create new business models or alter existing ones. That could set insurers up for a “change or die” situation as autonomous vehicles vastly increase safety, reduce risk, change who’s liable when accidents do occur, and produce a wealth of valuable driver data, Super says.

Yet with all of these possible new revenue streams, Super’s view is that the insurance industry as a whole is still being too cautious and reactive.

“The majority of insurance companies are taking a wait-and-see approach,” Super says. “A few are being more proactive by diversifying their product list, and others are investing [in the research and development of autonomous vehicles] through venture arms.”

At MCity, the self-driving test bed at the University of Michigan, State Farm is one of the program’s corporate partners, and Progressive Insurance and Savari are listed as a program affiliates. (Savari, as Xconomy reported in April, is a vehicle-to-infrastructure technology startup that raised a $12 million Series B round led by the VC arm of Aviva, a London-based insurance company operating for hundreds of years.) Techstars Mobility added three insurers to its list of corporate partners this year: CSAA Insurance Group, Nationwide, and USAA.

“Insurance companies are investing in autonomous vehicles to get upside from growth and corner the intellectual property elements,” Super says. A good example of industry-changing technology, he adds, is Progressive’s Snapshot service, which offers customers policy rates based on how well and how much they drive. Super predicts that, in the future, we’ll see policies more informed by data rather than traditional criteria like past driving records or behavioral risk factors.

Because most large insurance companies make the majority of their money underwriting policies, Super says there are potential autonomy-related threats to the industry as demand for individual policies decreases and ridesharing or shared vehicle networks increase. Driver errors are responsible for 90 percent of traffic accidents, so it’s expected that roads will become significantly safer after autonomy takes hold.

A major concern, he says, is that the industry will be slow to build autonomous safety discounts into coverage products. “As we get more insight around how autonomous vehicles increase safety, will insurance companies respond with discounts to entice customers to stay with the brand? We’re not seeing any insurers respond yet with these kinds of discounts. We see a really big opportunity—it’s in their best interest to start thinking about changes to coverage.”

Another big question yet to be answered, Super says, is the extent to which … Next Page »